Taxation changes in the Budget at a glance

Audrey Crean, Tax Partner, O’Gorman Brannigan Purtill & Co, Accountants & Taxation Advisors, Peter Street, Clonmel, explains some of the tax implications in last week’s Budget.

Audrey Crean, Tax Partner, O’Gorman Brannigan Purtill & Co, Accountants & Taxation Advisors, Peter Street, Clonmel, explains some of the tax implications in last week’s Budget.

Last week we saw Budget 2012 delivered over two days. On Monday, Brendan Howlin disclosed a reduction in expenditure totalling €2.2 billion. One of the areas targeted was Social Protection with an expected savings of €475m in 2012. Although he did not cut the weekly rates for any of the main social protection benefits, he did tinker with the conditions on how individuals will be eligible to qualify for social welfare payments and the duration of payments.

In relation to Taxation changes introduced, Michael Noonan announced many changes some of which I have summarised below:

Income Tax bands, rates and cut off thresholds remain unchanged.

From January 1 the exemption limit for Universal Social Charge (USC) will be raised from €4,004 to €10,036 per annum. This measure was introduced to take low paid, part-time and seasonal workers out of this charge. Therefore anyone earning less than €10,036 will not be liable to pay USC and anyone earning in excess of €10,036 will be liable to USC on all their income. All social welfare payments are exempt from this charge.

Household charge of j100

A household charge of €100 per dwelling was announced, being introduced as of January 1 to help fund vital local services. This charge will apply to all dwellings and the charge of €100 will be replaced in 2014 by a property value based charge. This current €100 charge will apply on properties owned on January 1 and the 2012 charge must be paid by March 31, 2012 to avoid late payment charges. The €100 will be paid to local authorities and an instalment arrangement is being offered. Individuals in receipt of mortgage interest supplement and individuals living in unfinished residential estates are exempt from paying this charge.

Motor tax across all categories will increase from January 1, 2012.

Good news for property owners

There was some good news for intended property owners, in particular new first-time buyers in 2012, mortgage interest relief will apply at a rate of 25% and 15% for non-first time buyers, up until 2018. After 2012 anyone who purchases a house will not be entitled to mortgage interest relief. Also those first-time buyers who acquired a property between 2004 and 2008 will be entitled to an increase in their rate of mortgage interest relief up to 30%. An individual is only a first-time buyer for 7 years and after that the relief will reduce to 15%.

Tax on savings which is known as DIRT was increased from 27% to 30%. This increase will apply to all regular interest received on or after the January 1, 2012.

The annual imputed distribution which applies to the value of assets in an Approved Retirement Fund (ARF) and similar products from December 31, 2012 is being increased from 5% to 6%.

The standard rate of VAT will be increased by 2% from 21% to 23% with effect from January 1, 2012, this will apply to a wide array of household items, toys, clothing for adults, petrol, diesel, cigarettes and alcohol.

Capital Gains Tax (CGT) payable on any gain made has increased from 25% to 30% with effect from December 6, 2011. A new capital gains tax incentive for property purchased between December 6, 2011 and December 31, 2013 has been introduced. Where the property is bought during this period and held for at least 7 years the gain attributable to that 7 years holding period will be relieved from CGT.

Changes to Retirement Relief are to promote timely transfers of farms and business before the owner reaches the age of 66. Full relief will continue to be available from CGT on interfamily transfers for individuals aged 55 -66. An upper limit of €3m was introduced on retirement relief for business and farming assets disposed of once over the age of 66.

Capital Acquisition Tax (CAT) a tax payable on gifts and inheritances has increased from 25% to 30% in respect of all gifts and inheritances made after December 6, 2011. Only the group A threshold between Parents to child was reduced from €332,084 to €250,000. Group B and C thresholds remain untouched at €33,208 and €16,604.

The Stamp Duty rate for commercial property transfers, which included all properties other than residential, is reduced from the current top rate of 6% to a flat rate of 2% on all amounts effective from midnight 6th December 2011.

Should you require any further information on the changes introduced please contact us on 052-6122044.